Assignment Type: Deliverable Length: 2 Policies
Sometimes market activities (production, buying, and selling) have unintended positive or negative effects outside the market's scope. These are called externalities. As a policy maker concerned with correcting the effects of gases and particulates emitted by and local company, answer the following questions:
1. What 2 policies could you use to reduce the total amount of emissions?
2. Why do you think they each would work?
3. What are 2 benefits of each action (besides emissions reduction)?
4. What would the costs of each action be?
5. How would you decide what was the best level of emission reduction?
Two policies that are often used to reduce pollution are taxation of producers (Pigouvian tax) and standards-charge approaches. Pigouvian taxes are generally levied as a excise taxes, which raises the prices of the goods. Less is produced, which lessens pollution.
The standards-charge approach taxes pollution directly. The government determines the amount of pollution that it thinks is optimal, and then charges a fine for each unit over this amount. Thus the standard-charge approach rewards producers for producing less pollution, over a certain level.
However, standards-charge approaches do not enable policymakers to closely control air quality. The government has to guess how much the company will reduce pollution in response to the fine. If the fine is set too low, the company may still produce more pollution than is desirable. In addition there is no incentive for companies to reduce pollution below a the government's established limit.
Positive benefits of both these measures are healthier people and ...
Policies to reduce emissions and their costs and benefits